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Bike Brands Take Hit From Joe’s Demise

Published April 1, 2009

BY NICOLE FORMOSA

WILMINGTON, DE—Blair Clark, senior vice president of sales and marketing for Smith Optics, summed up the impact of the Joe’s Sports, Outdoors and More recent bankruptcy filing this way: “I’ve broken both collar bones cycling and this is more painful.”

With more than $298,000 owed by the regional sporting goods chain, Smith is one of the bankrupt company’s 30 largest unsecured creditors.

Others include Diamondback/Raleigh with $381,747 owed; Easton Sports with a bill of $366,288; and Dakine at $345,067.

“That is a significantly large amount of money due to us,” said Steve Meineke, president of Raleigh America. “Our company is financially sound and will weather through that just fine, but needless to say, it’s a painful impact.”

In total, about two dozen bicycle companies are among the long list of creditors owed money by G.I. Joe’s Holding Corporation, a 30-store Pacific Northwest sporting goods chain that filed for Chapter 11 bankruptcy protection on March 4 in Wilmington, Delaware.

The 57-year-old company apparently sunk due to a lack of liquidity, prohibiting it from paying for current inventory or open-to-buy purchases for upcoming seasons.

Meineke won’t know until early this month what the chances are of recovering any of the money owed to Raleigh. The company’s credit manager is on the Committee of Unsecured Creditors, which was named on March 16 to represent that group in court.

From Clark’s perspective, as an unsecured creditor without a security agreement, Smith Optics and others in the same boat would likely be last in line when the bankruptcy judge begins settling debts, if the case gets to that point.

“There still may be product there, but we aren’t allowed to get our hands on it,” he said. “It’s just a tragedy and it probably won’t be the last in the category of sporting goods and ski places to go in the next 12 to 18 months. There are signs of other guys struggling.”

Other sporting goods chains are feeling the financial pinch, said Larry Weindruch, director of communications for the National Sporting Goods Association. “They’re doing everything they can to get through this, watching their inventory, doing more with fewer people—even before Joe’s Chapter 11 filing, they went so far as to temporarily lay off half of their distribution center personnel. Everybody is kind of in that mode of: What else can I do?” Weindruch said.

With the publicly traded companies, comps are down pretty much across the board, Weindruch said. Dick’s Sporting Goods, Inc. saw an 8.6 percent decrease in comparable store sales in the fourth quarter of 2008 and experienced a loss of $104.4 million, although the company said its cash flow remained strong.

Same store sales also dropped 8.6 percent at Big 5 Sporting Goods in the fourth quarter. At Sport Chalet, same store sales were down 15.4 percent as consumers cut back on spending.

Weindruch said many chains are reworking their credit facilities to make sure they have enough working capital to stay afloat. In early March, Sport Chalet amended its loan agreement with Bank of America. Under the new terms, Bank of America waived Sport Chalet’s default covenant and amended the borrowing base, allowing the company to refocus on improving its top line results.

On a regional level, the economic impact to smaller sporting goods chains appears to correlate to the state of the local economy, Weindruch said. Retailers in Michigan, where the fall of the auto industry has put thousands of people out of work, may not be doing as well as their counterparts in Texas where the economy has held up a bit better.

In the case of Joe’s, Weindruch speculated that the bankruptcy could’ve been at least partially linked to the increased difficulty in securing loans given today’s tighter lending environment.

Bike suppliers that do business in the sporting goods channel said that Joe’s bankruptcy, as well as some of the other chains’ financial hardships, don’t necessarily mean sporting goods is a riskier channel to do business in than the specialty channel.

“Weighing the upside and downside, I would say that they are no more or no less of a risk. Certainly when one falls, the downside is greater but when they are successful, they tend to sell a lot of product, forecast their demand and pay their bills on time,” said Larry Pizzi, president of Currie Technologies, which is owed more than $50,000 by Joe’s.

Until recently, Currie didn’t have any problems collecting on the account and Joe’s was current on its bill through the fourth quarter, Pizzi said.

“This is all current debt. It was all coming due when we starting to hear ramblings. When we pressed to get paid, it became obvious it was not going to be settled the normal way,” Pizzi said.